Why banks must take SME funding seriously


It is imperative to ask, what are the banks in Nigeria doing to enhance the viability of SME (Small and Medium-scale Enterprises) that are abound in the country?

However, it is clear that challenges confronting startups are similar; access to strategic loan/fund and management empowerment training tools, which can be accessible through the banks with a proactive marketing information and research team armed with resourceful data.

There is not lack of financial market talents and skilled professionals in the Nigerian banking industry despite the lackluster performance perceived judging by the level of financial services productivity as compared to potential SMEs opportunities not turnover or grossly ignored due to fixated focus on commercialized banking services to well established enterprises.

As the most populous country on the continent of Africa, an average person in Nigeria operates a side-business even if he/she is an employee somewhere, which is verifiable by level of SMEs operators who are Creative artisans, Interior design artists, and especially now that Agriculture, Poultry & Fish farming sub-sectors are gaining momentum. Courtesy of the Nigeria’s government policy makers diversifying to revamp the agricultural sector the banks are expected to explore and embrace the huge potentials it presents and not shy away from engaging SMEs on a long term projection in terms of loan financing and providing strategic partnership opportunities and management support services, which is largely dependent upon the human capital resources available in the banking/financial institutions.

It is worth mentioning the recent initiative by Guaranty Trust Bank “to invest resources to understand better the agricultural sector and its value chain”. A testament to the decades of neglect the agricultural sector has suffered once petroleum industry became the primary source of wealth creation in the Nigeria economy. Also, it goes show that there is the lack of information about the agricultural sector as corroborated in a statement by the managing director of GTBank, Segun Agbaje. He said, “Agriculture is a very specialized sector, you need to understand it; we will invest resources to understand it and hope to grow it; from one per cent to three per cent.”

Consider it instructive that banks in Nigeria should set up equity fund focusing on smaller and medium-sized companies by acquiring Nigerian equities. Such initiative would boost the propensity of SMEs improve and scale up productivity. In the current situation where scarcity of funds remained a strategic challenge to many resilient SMEs that have performed significantly better in recent years. There are tangible economic reasons behind the greater long-term increase in value. The Nigeria SMEs is home to numerous Africans market with strong competitive positions, rising profit margins, sold balance sheets and favorable valuations.

And as part of the challenge ailing SMEs, the GTBank MD said the lender was seeking to grow its loan book in the Small and Medium-scale Enterprises lending but there was a need to seek adequate knowledge on the workings of the sector. An evident admission that lack of knowledge and information could be costly.

It is imperative that SMEs are considered pivotal to economic development and this should be a major focus point in banks mass market segment as a veritable economic empowerment/development for small businesses to go beyond the parochial intent of short-term profit-making to embed societal and environmental interests which would deliver long term growth. However, the strategic support of banks to SMEs is crucial in integrating a social dimension to their value proposition will make small businesses more sustainable than those focused on short term conventional cost and quality advantages.

The much anticipated growth opportunities accessible to both SMEs and the banks in Nigeria are limitless if human capital resources are focused to explore potential profitable opportunity with a long-term perspective. Thus underlying the belief that “no financial institution could experience true growth without expanding its portfolio of SMEs lending,” expressed Segun Agbaje.

Many of these SMEs are managed or controlled by the founding owner, and the bank should value such personal relationship with SMEs. As observed active SME owners pursue long-term strategic goals and are therefore in the same boat as the other shareholders. These SMEs increase their sales and profits faster than major corporations – ‘which often is the case in Nigeria with focus on established bigger players’. The banks fund managers should step lower and see SMEs that offer good potential outside of the well-known business strata. Where the goal of the SMEs portfolio is to achieve sustainable increases in value that are above-average in the long term projections.

“Innovation at the speed of light,” writes Bill Gates. There is no time to waste solving problem when there exists the willingness to undertake a calculated risk. With laudable initiative by First Bank of Nigeria Plc, the bank’s sustainability program would reinforce the commitment to promote empowerment, entrepreneurship and financial inclusion of SMEs through sponsorship workshops.

Such idea by FirstBank’s SMEConnect Series should be replicated by all banks and micro-finance institutions across the country to equip SMEs on sustainable growth strategy; for enterprises to generate employment, economic benefits and social value. That reaffirms the new definition that “innovation is providing solution to a local problem”.

Banks must embrace SMEs challenges because there is more to banking than deposits.

Mudi Mustapha
Analysts-at-Large, PageOne

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